PNB BOARD CLEARS 6.8% GOVERNMENT STAKE SALE

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PUNJAB National Bank (PNB) has got approval from board to raise capital by selling 6.8% of government’s stake to fund overseas expansion and meet Basel II norms. Government’s stake in PNB stands at 57.8%. If the government approves the proposal, its stake in PNB will fall to 51%. Further, PNB has also got an approval for raising Rs 1,000 crore additional Tier II capital.

The bank reported a 16% rise in net profit to Rs 429.87 crore during the third quarter of this fiscal against Rs 370.44 crore in the third quarter of the previous fiscal. The board of the bank on Wednesday also approved an interim dividend of 40%.

“The Board on Wednesday approved a decision to raise Rs 1,000 crore additional Tier II capital and a reduction of government shareholding in the bank to 51% from 57.8%,” PNB CMD S C Gupta said while announcing the bank’s third quarter results here. “The bank will formulate a proposal and seek government’s permission for raising capital,” a government official said.

Mr Gupta said that the bank will raise at least Rs 500 crore Tier II capital before the end of this fiscal. It may also raise capital through a followon public offer or offload stake to Qualified Institutional Bidders (QIB).

“Depending on our requirement for capital, we will raise either Tier I or Tier II capital since we have headroom up to Rs 2,000 crore,” Mr Gupta said. Tier 1 Capital is a measure of capital adequacy of a bank and is the ratio of a bank’s core equity capital to its total risk-weighted assets. It includes, common stock, preferred stock that is irredeemable and non-cumulative, and retained earnings. Tier II capital includes undisclosed reserves, revaluation reserves, general provisions, subordinated term debt and hybrid instruments.

“The government is also encouraging us to tap the market and raise resources,” R Raghuraman, executive director, PNB added. The bank is planning to open two subsidiaries in London and Canada. PNB is also in the process of setting up an offshore banking unit in Singapore and a branch in Hong Kong.

This could set a precedent for other public sector banks where government holding is over 51%. With RBI increasing repo rate to 7.50%, the bank will take a call on rates next week. Mr Gupta said that the RBI has made short-term borrowings for banks costly and it may have an impact in the next quarter results.
Meanwhile, the bank on Wednesday increased deposit rates with effect from February 1, to 9% for deposits for three years and above. There is a stipulated lock-in period of 1 year and a minimum deposit amount of Rs 1 lakh.

Its advances grew by 30% to Rs 87,649 crore as on December 31, 2006, against Rs 67,190 crore a year before. Deposits, on the other hand, rose by 23% to Rs 1,30,225 crore against Rs 1,05,749 crore. Net interest income rose by 21% to Rs 1,446 crore from Rs 1,197 crore. The bank’s net interest margin stood at 4.31%. The increase in provisioning requirements is going to cost the bank an additional Rs 50 crore. The provisioning requirement increased to 2% for standard assets in the real estate sector, outstanding credit card receivables, loans and advances qualifying as capital market exposure and personal loans excluding residential housing loans.

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